How Minimum Wage Works

In the United States, the federal minimum wage is regulated by the Fair Labor Standards Act (FLSA), first signed into law by Franklin D. Roosevelt in 1938. Roosevelt fought for years with a Supreme Court that repeatedly ruled against a fixed minimum wage, arguing it violated "liberty of contract" between employers and workers [source: Grossman].

It wasn't until after Roosevelt's landslide victory in the 1936 elections (523 electoral votes to 8) that the Supreme Court finally relented, paving the way for the passage of the FLSA. But the FLSA establishes more than just the national minimum wage. It also regulates overtime pay, youth employment standards and recordkeeping provisions for all public and private sector jobs in America.

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The very first federal minimum wage set by the FLSA was $0.25 an hour in 1938. A year later, it went up to $0.30 an hour. The minimum wage didn't reach $1 until 1956 and $2 until 1974. The latest amendment to the FLSA established a minimum wage of $6.55 an hour until July 24, 2009, when it will be raised to $7.25 an hour. Every increase in the minimum wage requires congressional approval.

Federal minimum wage law is enforced by the Wage and Hour Division (WHD) of the Department of Labor. If the WHD discovers an infraction, it will first try to resolve the situation by bringing the employer into compliance and making sure that the wronged employees are paid any back wages. Repeated failure to comply with the FLSA can result in fines as high as $10,000 or even jail time.

Many states also have their own minimum wage laws. Currently, 27 states and the District of Columbia have minimum wages that exceed the federal standard. The state of Washington, for example, has the highest minimum wage, at $8.55 an hour. Six states have set minimum wages lower than the federal level, with Kansas being the lowest at $2.65 an hour. In all situations, employers must pay their employees the higher of the two minimum wages, whether federal or state.

More than 130 million workers in the U.S. are covered by the FLSA. In the next section, we'll talk about the kinds of jobs that qualify for minimum wage protection.